Money Laundering

By Chintan Gutka Himanshu Kapadia Harshael Sawant Olivia D·Mello Ritesh Sapre Ashwin Sharma

` ` ` ` ` ` ` Definition Process Statistics Risks Ml case in India(HAWALA) How to avoid it/corrective measures Laws for the same .

control or destination of illegally gained money. Ultimately. is the act of making money that comes from Source A look like it comes from Source B. In Simple terms.Definition Money laundering is the practice of engaging in a series of financial transactions to conceal the ownership. it is the process by which the proceeds of crime are made to appear to have a legitimate origin. at its simplest. source. Money laundering.. .


‡The purpose of layering is to disassociate the illegal monies from the source of the crime by purposely creating a complex web of financial transactions aimed at concealing any audit trail as well as the source and ownership of funds. INTEGRATION ‡The final stage in the process. By this stage.PLACEMENT ‡First stage in the washing cycle. it is exceedingly difficult to distinguish legal and illegal wealth. It is this stage at which the money is integrated into the legitimate economic and financial system and is assimilated with all other assets in the system. ‡Integration of the "cleaned" money into the economy is accomplished by the launderer making it appear to have been legally earned. . ‡The money is placed into the financial system or retail economy or are smuggled out of the country. ‡The aims of the launderer are to remove the cash from the location of acquisition so as to avoid detection from the authorities and to then transform it into other asset forms ‡Example: travellers cheques. etc. postal orders. LAYERING ‡An attempt at concealment or disguise of the source of the ownership of the funds by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity.

The Techniques Placement Layering Integration ‡ Smurfing ‡ Shipping Money Abroad ‡ Placement through Banks ‡ Use of ´Pass Throughµ or ´Payable Throughµ Accounts ‡ Electronic Wire Transfers ‡ Insurance Products ‡ Investment Related ‡ Tax Havens & Offshore Banks ‡ Bank Secrecy Law as a layering tool ‡ Corporations & Shell Companies as a layering tool ‡ Use of trusts ‡ Use of walking accounts ‡ Establishing self owned bank ‡ Use of intermediaries ‡ Use of haven bank credit cards ‡ Receiving as consulting or directors fee ‡ Arrangement of corporate loans ‡ Proceeds of gambling ‡ Real estate transactions ‡ Stock Purchase ‡ Use of business ‡ International importing and exporting ‡ Use of free trade zones .

to increase their profits. A simpler method is to transfer the money (via EFT) to a legitimate bank from a bank owned by the launderers.They are then able to grant themselves loans out of the laundered money in the course of a future legal transaction.Methods popular to money launderers at this stage of the game ` The establishment of anonymous companies in countries where the right to secrecy is guaranteed. ` ` . The sending of false export-import invoices overvaluing goods allows the launderer to move money from one company and country to another with the invoices serving to verify the origin of the monies placed with financial institutions. Furthermore. as ¶off the shelf banks· are easily purchased in many tax havens. they will also claim tax relief on the loan repayments and charge themselves interest on the loan.

` ` ` ` . the funds are usually processed relatively close to the under-lying activity At he layering phase. launderers might choose to invest laundered funds in still other locations if they were generated in unstable economies or locations offering limited investment opportunities. the launderer might choose an offshore financial centre. or a world banking centre ² any location that provides an adequate financial or business infrastructure.Where does money laundering occur? ` Countries or sectors in which there is a low risk of detection due to weak or ineffective anti-money laundering programmes Concentrated geographically according to the stage the laundered funds have reached. At the placement stage. a large regional business centre. At the integration phase. for example.

Influencing Factors ` ` ` ` ` ` ` ` ` ` ` ` ` ` Acceptance of flight capital by western countries Laws and limitations of other countries Tax heavens as sanctuaries Offshore corporations Bankings· role in facilitation of the activity Bank Secrecy Volume and complexity of international Transfers of funds Internet based banking Shortfall of reporting requirements Criminals influencing Government and Bank support The widespread use and acceptance of Trade mis-pricing .

Some Figures.. Contribution by different continents in money laundering for the year 2008. and around 17% of their GDP is made from this illegal practice. ` In 1996 the International Monetary Firm estimated that 2-5% of the worldwide global economy involved laundered money The United States apparently is one of the havens for organized money laundering. ` ` .

such person or entity shall be guilty of offense of money-laundering Section 4 . .Prescribes punishment for money-laundering with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine which may extend to five lakh rupees and for the offences mentioned [elsewhere] the punishment shall be up to ten years.Laws The Prevention of Money-Laundering Act. ` ` Section 3 . 2002 came into effect on 1 July 2005.Covers those entities who directly or indirectly attempt to indulge in any process or activity connected with the proceeds of crime and projecting it as untainted property.

` Section 12 (2) .Prescribes that the records referred to in sub-section (1) as mentioned above. must be maintained for ten years after the transactions finished. whether such transactions comprise of a single transaction or a series of transactions integrally connected to each other.. .Contd. ` Section 12 (1) . financial institutions and intermediaries (a) to maintain records detailing the nature and value of transactions which may be prescribed.Prescribes the obligations on banks. and where such series of transactions take place within a month (b) to furnish information of transactions referred to in clause (a) to the Director within such time as may be prescribed and t records of the identity of all its clients.

Without a usable profit. Most importantly. it is often the connections made through financial transaction records that allow hidden assets to be located and that establish the identity of the criminals and the criminal organisation responsible. When criminal funds are derived from robbery. extortion. however. targeting the money laundering aspect of criminal activity and depriving the criminal of his ill-gotten gains means hitting him where he is vulnerable. embezzlement or fraud. a money laundering investigation is frequently the only way to locate the stolen funds and restore them to the victims.Fighting money laundering help fight crime ` n law enforcement investigations into organised criminal activity. ` ` . the criminal activity will not continue.

their powers and resources Mutual legal assistance and extradition Other forms of co-operation . Special attention to transactions with persons/companies and financial institutions. Regulation and supervision Competent authorities.Steps to avoid money laundering ` ` ` ` ` ` ` ` Customer due diligence and record-keeping Reporting of suspicious transactions and compliance Financial institutions should also guard against establishing relations with respondent foreign financial institutions that permit their accounts to be used by shell banks. from countries which do not or insufficiently apply the FATF Recommendations.

7 billion Balance as on December 8. By 1999. As on August 31. A payment of $240 million allegedly from Adnan Khashoggi·s Chase Manhattan Bank account in New York was approved by Weilly and accepted by Reto Hartman at UBS Singapore After the $240 million transaction. a refund of $300 million was deposited as ¶funds from weapon sales· into the account. 2006: $8.04 billion ` ` ` .The Hasan Ali case. 2006: $7.. the deposit amount reached $560 million.6 billion Balance as on November 2.A little later. 2006. the account moved from UBS Singapore to UBS Zurich in 1986 By December 1997. the balance in the account was US$6. Most of this money is lying as liquid cash and bonds By 2001. the same account mysteriously increased to $969 million (~ US$ 1 billion). ` ` ` ` ` ` Khan had started an account with a deposit of $1.5 million with UBS Singapore in 1982. the account became non-operational.